CONNECTICUT ESTATE AND GIFT TAX Karen Smith ...20140929_State Tax Panel...CONNECTICUT ESTATE AND...
Transcript of CONNECTICUT ESTATE AND GIFT TAX Karen Smith ...20140929_State Tax Panel...CONNECTICUT ESTATE AND...
CONNECTICUT ESTATE AND GIFT TAX
Karen Smith Conway
Professor, University of New Hampshire
Jonathan C. Rork
Professor, Reed College
November 23, 2015
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Table of Contents Page
I. List of Tables 2
II. List of Figures 3
III. Executive Summary 5
IV. Introduction 8
V. General Background 8
VI. EIG Taxes in and around Connecticut 10
Comparison to Other States 12
Current Features of Connecticut’s EIG Tax 13
VII. Issues to Consider in Evaluating an EIG Tax 14
Distributional Considerations 14
Behavioral Effects 14
Migration 15
Economic Growth, Revenues, and Other Issues 17
VIII. The Effect of EIG Taxes in Connecticut 17
Distributional Effects 18
Migration 18
Economic Growth 22
IX. Policy Options to Consider 23
X. References 29
XI. Glossary of Terms 31
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List of Tables Page
Table 1: Major Changes to Federal Estate Taxes since 2000 32
Table 2: Changes to EIG Taxes at the State Level since 2000 33
Table 3: Summary of Connecticut Estate Tax Changes since 2005 34
Table 4: Summary of Current State EIG Tax Parameters 35
Table 5: Top Inflows and Outflows for Connecticut in the ACS, by Year 36
Table 6: Net Inflows to Connecticut in the ACS, by State and Year 37
Table 7: Number of Migrants to/from Connecticut, Based on IRS Filings 38
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List of Figures Page
Figure 1: Current Status of State EIG Taxation 39
Figure 2: EIG Revenues as a Percentage of Total Tax Receipts, by Selected
States and Years 40
Figure 3: Federal and Connecticut Estate Tax Exemption Amounts, by Year 41
Figure 4A: Current Estate/Inheritance Tax Exemptions, by State 42
Figure 4B: Highest Estate/Inheritance Tax Rate One Could Face, by State 43
Figure 4C: Tax Bill on 20 Million Dollar Estate, by State 44
Figure 5A: Net Connecticut Estate Tax Burden After Federal Deduction of
Connecticut’s Estate Tax 45
Figure 5B: Average Tax per Dollar of Connecticut Estate in 2014 45
Figure 6A: Total Number of Federal Estate Tax Returns, By Northeast States 46
Figure 6B: Total Federal Estate Returns as Percentage of Previous Year of Data,
Northeast States 46
Figure 7A: Total Number of Federal Estate Tax Returns, for Southern States
and Connecticut 47
Figure 7B: Total Federal Estate Returns as Percentage of Previous Year of Data,
for Southern States and Connecticut 47
Figure 8A: Total Number of Federal Estate Tax Returns, for Non-EIG
Midwestern States and Connecticut 48
Figure 8B: Total Federal Estate Returns as Percentage of Previous Year of Data,
for Non-EIG Midwestern States and Connecticut 48
Figure 9A: Total Number of Connecticut Income Tax Filers Claiming
Social Security Benefit Adjustment (Line 42), By AGI 49
Figure 9B: Percent of All Connecticut Income Tax Filers Claiming
Social Security Benefit Adjustment (Line 42), By AGI 49
Figure 10A: Annualized Growth in Per Capita Income, Northeast States 50
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List of Figures (Continued) Page
Figure 10B: Annualized Growth in Gross State Product Per Capita, Northeast States 51
Figure 11A: Annualized Growth in Per Capita Income, Connecticut and
Southern States 52
Figure 11B: Annualized Growth in Gross State Product Per Capita, Connecticut
and Southern States 53
Figure 12A: Annualized Growth in Per Capita Income, Connecticut Versus
Selected Regional Averages 54
Figure 12B: Annualized Growth in Gross State Product Per Capita, Connecticut
Versus Selected Regional Averages 54
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Executive Summary
The passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA),
the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
(TRUIRJCA), and the American Taxpayer Relief Act of 2012 (ATRA) fundamentally altered the
structure of the federal estate tax. Gone was the state pick-up tax, which allowed for a federal
tax credit for state Estate, Inheritance and Gift (EIG) taxes paid. The federal estate tax
exemption has been raised from $675,000 to $5.43 million, and is now indexed to inflation. The
federal estate tax and gift tax are now unified, so that any gifts given beyond the annual limit
(currently $14,000 per recipient) count against the exemption. Portability, which allows a spouse
to use any unclaimed exemption by his/her deceased spouse, is now a permanent feature of the
tax code.
For the states, the immediate effect of the loss of the pick-up tax was a loss in revenues. Some
states responded by decoupling their EIG tax from the federal code in order to maintain the tax;
by not decoupling, other states effectively let their EIG tax fade away. Other states went one
step further by officially eliminating their EIG tax altogether. Currently, 20 states, including
Connecticut, impose some sort of EIG tax.
With the elimination of Minnesota’s gift tax in 2014, Connecticut is the only state imposing a
stand-alone gift tax. Similar to federal law, Connecticut’s gift tax is a unified tax; all gifts that
exceed the annual tax-free limit count against the amount that is exempt from eventual estate
taxation. The current estate exemption level of 2 million dollars places Connecticut in the middle
of all states nationally. Its highest tax rate of 12% is the second lowest in the nation.
Connecticut has one of the lowest tax impacts in the Northeast for large estates. Connecticut’s
EIG tax is the most progressive tax Connecticut maintains, which is a consideration for a state
that we find ranks 4th in income equality, a measure that has worsened both absolutely and
relatively through the years.
EIG tax revenue is notoriously volatile and hard to predict. Not only does the tax depend on
people dying, but it also can be paid many years later than the year death occurs. This means
that in a given year, EIG revenue is raised from both the estates of recently deceased, as well as
those who deceased in years past, which can span numerous years. Since 2001, Connecticut’s
EIG tax revenue as a share of total tax revenues has exhibited a decreasing trend, from a high of
2.5% to currently below 1%. Only in 2013 is there a significant departure from this trend path.
We evaluate the impact of Connecticut’s EIG tax on the state through a variety of means. In a
migration context, we utilize data from the Census and the American Community Survey (ACS)
to show that Connecticut has experienced a fairly steady net-outflow of elderly migrants since
1980. Moreover, the states Connecticut loses migrants to have also remained stable over this
time. Given that EIG tax policies have changed a great deal during this period, the stability of
these migration patterns suggest they are influenced little by EIG taxes. We also find that the
behavior of high income elderly migrants (those most likely to face EIG taxes) have been similar
to the general elderly migrant population. These stable patterns are verified in data from the
Internal Revenue Service (IRS), and is consistent with the established literature that shows little
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to no migration effects from EIG taxes. We also see no evidence of migration effects from data
on federal estate tax returns or Connecticut personal income tax filings.
Connecticut’s EIG tax also appears to have limited impact on annual economic growth in the
state, regardless of how growth is measured. Connecticut growth falls in line with all its
neighboring states and does not appear affected by changes in its EIG tax policy. Even in
comparison to Southern states that have experienced large amounts of population growth over
the last 30 years, Connecticut’s per capita growth rate would not be considered an outlier. A
similar pattern emerges when Connecticut is compared to Midwestern states without EIG taxes.
Connecticut’s growth appears to be more volatile than some states, but that pattern has been
consistent since 1978, making it hard to blame EIG taxation for any growth pattern we witness.
The report ends with six policy recommendations for the panel to consider. They include:
1) Retain the Current EIG Tax. The EIG tax is only one of two progressive taxes in the
Connecticut tax system and the total (federal + Connecticut) tax on estates is lower currently
than it has been at any time in recent history. Connecticut has already enacted (in 2009) the
critical reform of removing the ‘cliff,’ whereby estates just exceeding the exemption faced a
disproportionately large tax burden. While only 20 states impose an EIG tax, nearly all of the
states in the region do so and Connecticut’s tax is near the bottom in terms of tax liability;
however, this policy is in flux and so the landscape could change rapidly. Nearly all other
options will reduce revenues that are unlikely to be made up via retaining rich residents or
increased economic growth.
2) Allow for a state-specific QTIP election. Currently, Connecticut does not allow for a state
specific QTIP election. For situations where the value of the estate is more than the Connecticut
exemption but less than the federal exemption, the lack of a state specific QTIP election prevents
married couples from deferring state taxes without forgoing the full federal exemption when the
first spouse dies. Allowing a state specific QTIP will simplify estate planning for Connecticut
residents.
3) Conform to the Federal Estate Tax. Connecticut already conforms with the federal unified
gift tax. Two other ways to conform include:
i) Increase the exemption level to the federal limit (currently $5.43 million, indexed to
inflation), and
ii) Adopt the ‘portability’ feature in which one spouse may claim the unused exemption
of a deceased spouse.
Conforming to the federal estate tax would simplify estate tax planning, fully exempt from
taxation the large number of currently-taxable, smaller estates, and lower significantly the tax
burden on all estates. These changes would also substantially reduce EIG tax revenues.
4) Increase the Marginal Tax Rate on Federally Taxable Estates. The deductibility of state EIG
taxes from the federally taxable estate affords the state the opportunity to capture a portion of
federal revenues, as it did under the ‘pickup’ tax. Estates below the federal threshold do not
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enjoy this benefit and so, despite an increasing statutory marginal tax rate, Connecticut’s
effective marginal tax rate actually declines (and is sometime negative) for medium to large
estates. This option is the only one considered that could increase revenues. It could therefore be
considered in combination with other reforms in an effort to be revenue neutral on balance.
5) Eliminate the Gift Tax. The gift tax generates a relatively small amount of revenue (about 4%
of all EIG tax revenues in 2013-14). Eliminating the gift tax increases the opportunity for
‘deathbed’ gift planning, in which large transfers are made in contemplation of death to avoid the
estate tax, although the federal unified gift tax law would still apply to larger estates. Eliminating
the gift tax will therefore likely significantly reduce EIG tax revenues, especially if no other
‘gifts-in-contemplation-of-death’ rules are enacted.
6) Eliminate the Estate (and Gift) Tax. Connecticut EIG taxes are a relatively small portion of
total tax revenues (<2%), with revenues equaling $207 million in 2013-14. Connecticut would
join the majority of other states without EIG taxes and be the only state in the region besides
New Hampshire without one.
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Introduction
State estate, inheritance and gift (EIG) taxes have a long and volatile history, one that is
intricately linked to that of the federal estate tax law. The last fifteen years are a prime example.
In response to a key change in federal estate tax law in 2001, many states effectively increased or
brought back their EIG taxes, only to subsequently decrease or eliminate them. The 2010s have
seen many additional changes to state EIG taxes; Illinois, Iowa and Oregon implemented an
estate tax, 8 states have increased the exemption before an EIG is triggered, and 5 have
eliminated them altogether1. To aid in determining the best course of action, if any, for
Connecticut, we first provide a broad overview and brief history of EIG tax law at the federal
and state level and then for Connecticut in particular. We then discuss the possible effects and
issues of EIG taxes, following with an examination of the evidence regarding Connecticut’s EIG
tax law’s effect on possible migration and economic growth. We close with a discussion of
policy options to consider.
General Background
State EIG (sometimes referred to as “death”) taxes are comprised of three types of taxes: Estate,
Inheritance (or Succession), and Gift taxes. Both estate and inheritance taxes are levied upon the
transfer of wealth upon death. Estate taxes apply to the decedent’s estate, whereas inheritance
taxes apply to the bequests made to beneficiaries. Both often exclude bequests given to spouses
or charity. The key difference is that inheritance taxes are legally imposed on the heirs (though
paid by the estate) and apply varying tax rates and exemptions according to the type of
beneficiary; more distant relatives and unrelated individuals typically face higher rates. Gift
taxes are imposed on wealth transfers prior to death and help prevent individuals from avoiding
estate and inheritance taxes by transferring their wealth prior to death. Absent a gift tax,
individuals can avoid paying estate or inheritance taxes by giving their assets away while alive.
Currently, 13 states plus DC have an estate tax2, 4 have an inheritance tax and 2 have both; both
Connecticut and the federal government currently impose a unified estate and gift tax.3
State and federal EIG taxes have a long and intertwined history. The federal estate tax became
permanent in 1916, and the vast majority of states already had EIG taxes by that time. As early
as the 1920s, however, states began to reduce and eliminate their EIG taxes in the hope of
attracting or at least retaining their wealthiest residents (Cooper, 2006). Partially in response to
this tax competition, Congress in 1924 provided a tax credit against the federal estate tax liability
for state EIG taxes paid, up to a certain amount. This dollar-for-dollar tax credit allowed the
states to impose an EIG tax without increasing the overall tax burden (federal + state) imposed;
this so-called ‘pick-up’ or ‘soak-up’ tax allowed states to receive a share of federal revenues. All
states took advantage of this provision. As early as the 1950s, a few states, most notably Florida,
1 Oregon replaced its pick-up tax for a standalone estate tax, and Tennessee repealed its inheritance tax effective
January 1, 2016. 2 This tally includes Nebraska, whose tax is imposed by local counties and not the state. 3 A unified estate and gift tax is where the same exemption and tax rates apply to both, and lifetime taxable gifts
count against both the gift and the estate tax exemptions. Gifts are only taxable once they exceed the annual, per-
recipient federal exemption ($14,000 in 2015; see Michael 2014, p. 11).
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chose to impose only the pick-up tax. In practical terms, such states can be considered as not
having a ‘true’ estate tax; they simply receive a portion of the federal tax liability. The mid-
1970s saw the beginning of another wave of state tax competition as many more states began
eliminating any additional EIG taxes beyond the pickup tax. By 2000, 33 states had only the
‘pickup’ tax, including all of Connecticut’s neighbors as well as Vermont and Maine (Conway
and Rork 2004). Connecticut continued to have an additional tax (a succession tax).
Federal estate tax law has seen many changes since 2000, summarized in Table 1. Foremost is
the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which made many
changes to the federal estate tax that affected the states. EGTRRA phased out the state tax credit
and replaced it with a deduction, which is less valuable, in 2005.4 It also steadily increased the
exemption from $675,000 to $3.5 million and decreased the top tax rates from 55% to 45% by
2009. It eliminated the federal estate tax completely for deaths occurring in 2010, but then
returned to the federal law in place in 2001 (pre-EGTRRA) for 2011.
As has been noted by many (e.g., Michael 2014, Francis 2012, Cooper et al 2004), the sudden
loss of revenue combined with the uncertainty of whether the credit would return in 2011 led to a
myriad of state EIG tax policy responses.5 Many states did nothing and thus lost the revenues
from the pickup tax; for states that had only a ‘pick-up’ tax, that meant that EGTRRA effectively
eliminated or, perhaps more accurately, rendered dormant their entire EIG tax system. Florida, a
popular destination for retirees including those from Connecticut, falls in this category.6 Some
states, including Arizona, went a step further and repealed all reference to the estate tax (Francis
2012). Still other states ‘decoupled’ from the federal system by referencing the estate tax at a
certain date (prior to EGTRRA), thereby preserving the old revenue source but also now
effectively imposing a new, additional tax burden on the estate.7 Finally some states enacted
new, ‘stand-alone’ estate taxes whereby the state set its own exemption level and tax rate.
With EGTRRA’s provisions expiring at the end of 2010, the Tax Relief, Unemployment
Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA) was enacted in
December 2010, which made temporary changes, followed by the American Taxpayer Relief Act
of 2012 (ATRA) enacted in January 2013 and making permanent changes.8 Several of the
changes resulting from these federal laws have implications for state EIG taxes (Michael, 2014).
First, the exemption amount increased to $5 million and was indexed to inflation. Second, the
4 A tax credit reduces the tax liability dollar for dollar. A deduction reduces the tax base and thus reduces the tax
liability by the marginal tax rate (MTR) x deduction amount. For example, at a MTR of 50% a deduction is worth
only half as much as a credit of the same amount. 5 Many of these studies also assert that the state tax credit was eliminated as a way for Congress to pay for the loss
of revenues caused by the reduction in the federal estate tax. See Cooper et al (2004) for a thorough explanation of
the different types of state responses. 6A recent report links Rhode Island’s increased out-migration after 2004 to Florida’s “elimination” of the estate tax,
which reveals the lack of understanding and degree of misinformation about these taxes (Moody and Felkner, 2011).
As noted above, Florida has not imposed a ‘real’ EIG tax for at least 50 years prior to 2004. 7 The degree of decoupling can get complicated as some states referenced the state tax credit schedule of an earlier
date but tied the exemption to the current federal law. As discussed shortly, Connecticut fell in that category during
2005-2009. It then enacted its own, stand-alone estate tax beginning in 2010. 8 One such change was to retroactively apply a $5 million exemption for estates in 2010, rather than being
completely exempt from taxation as under EGTRRA.
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tax rate decreased to 40%. These two changes further reduce the value of the federal deduction
for state EIG taxes by having fewer estates subject to tax and by reducing the value of the
deduction for those estates that are subject to the tax (because the mtr is lower; see footnote 2).
It also made the federal exemption ‘portable’ in that the deceased spouse’s unused exemption
can be passed to a surviving spouse. For example, suppose John dies and leaves a $6 million
estate to his wife Mary. Mary will pay no federal (nor state, in the vast majority of states) estate
tax, even though the $6 million estate exceeds the $5.43 million exemption, because of the
spousal exemption. Portability means that when Mary dies, she will not only have the exemption
in place in that year but she will also get John’s unused portion. Instead of having $5.43 million
(+ inflation) of her estate exempt from taxes, more than $10 million will be exempt.9 (Without
portability, John would have an incentive to leave up to $5 million to his other heirs, to take
advantage of the exemption.) As discussed in the next section for Connecticut, this has tax
implications for QTIPs in states with estate tax exemptions lower than the federal tax. A QTIP is
a qualified terminable interest property, a trust in which John can designate who receives the
assets upon Mary’s death, but Mary has the right to all income generated by the QTIP while
alive. In essence, it allows John to transfer his assets to Mary while also specifying how the
remaining assets are allocated after Mary’s death.
Finally, the federal exemption and the gift exemption are now unified. This means that any gifts
made by a donor to a given recipient beyond the annual exemption amount (currently $14,000)
count against the federal exemption amount (currently $5.43M) upon death of the donor.
As a result of all of these federal rule changes and the belief since 2013 that the federal law is
now permanent, state policies are currently being revised and debated in many states. Table 2
summarizes the EIG tax status of each state, as of this writing. Figure 1 reveals that states with
EIG taxes are clustered geographically and that estate taxes are common in the region around
Connecticut.
The federal estate and state EIG taxes have therefore been subject to many policy changes over
the years and yet both are relatively small in terms of their importance to revenues. Figure 2
shows that state EIG taxes make up a very small (< 3%) and generally declining fraction of total
state tax revenues. With the current wave of state EIG tax reductions, this fraction seems almost
certain to decline further.
EIG Taxes in and around Connecticut
At the time EGTRRA was enacted, Connecticut had a succession (inheritance) tax as well as an
additional estate/’pickup tax’ that was designed to ‘pick up’ any unused portion of the federal tax
credit. Transfers to spouses and immediate family members were already exempt, and taxation
on all other transfers were set to be phased out by 2006 (2001-2 Annual report). Thus,
Connecticut was on track to become a ‘pickup tax only’ state. EIG tax collections equaled
$260,832,767 (or 2.7% of total state revenue sources) in FY2000, falling to $173,040,623 (1.9%)
9 Only Hawaii currently allows for such portability in its estate tax law and Maryland will allow it starting in 2019.
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in FY 2002.10 By FY 2006, EIG collections were $203,457,505 and accounted for only 1.6% of
state revenue sources.
In 2005, Connecticut replaced the separate (‘pickup’) estate tax and separate gift tax with a
unified gift and estate tax; it also repealed its succession tax. The unified estate and gift
exemption was $2 million and the tax rates ranged from 5.085% to 16% for estates over $10.1
million. (Figure 3 shows the exemptions for Connecticut and the federal law since 2000.)
Connecticut therefore became like several other states that enacted estate taxes based largely on
the dormant federal tax credit and, as a result, had a ‘cliff’ or ‘bubble’ marginal tax rate on
estates valued just over the exemption (Estate Tax Report 2008, Michael 2014). These cliffs
arise because once the estate exceeds the exemption level, the entire estate is subject to the tax
rather than only the amount that exceeds the threshold. This peculiarity seems to have arisen
because states impose a tax liability based on the pre-EGTRRA state death tax credit laws on
estates exceeding the exemption; as states increase the exemption level, the cliff becomes higher
(see footnote 11 below).
Laws enacted in 2008 and 2009 significantly reduced the Connecticut tax on estates and created
a ‘stand-alone’ estate tax not based on the old credit. These laws increased the exemption to
$3.5 million, lowered the tax rates on all estate levels (top rate was now 12%) and removed the
cliff by making only the portion of the estate above the exemption level subject to tax.11 For
example, a $3 million estate that would have paid $182,000 in estate taxes in 2009 would pay
nothing in 2010; a $4 million estate would have paid $280,400 in 2009 and only $38,400 in
2010. In 2011, Connecticut changed its estate tax law again to where it stands today (reported in
Table 3). The exemption returned to its prior level of $2 million and estates in the $2 – 3.5
million range face a tax rate of 7.2%, the rate that had been imposed on estates between 3.5M
and 3.6M previously. Because the cliff has been removed, these smaller estates still face a lower
tax liability than in 2009, despite the higher tax rate (7.2 vs. 5.085). For example, a $2.1 million
estate would have paid $106,800 in 2009 but would only pay .072 x $100,000 = $7200 in 2011.
In sum, during this period Connecticut saw its EIG tax revenues decline (in real terms) as the
state death tax credit (‘pickup tax’) was phased out. Conversely, Connecticut residents
experienced an increase in the additional estate tax liability imposed by the state above that of
the federal law, because they could no longer deduct their state EIG taxes dollar for dollar from
their federal liability and instead could only claim a deduction. The removal of the cliff and the
reduction in tax rates beginning in 2010 reduced significantly this tax liability (and revenues
generated). However, at the same time, the dramatic increase in the federal exemption to its
current level of $5.43M means that estates below that amount face no federal tax and therefore
lose the deduction. Nonetheless, one must note that the total estate tax liability (federal +
Connecticut) is far lower today than it has been at any time in recent history.
10 The numbers for FY2000 and FY 2002 are taken from the 2001-2 Annual reports, p. 18, and are the sum of the
‘Connecticut Estate Tax,’ the ‘Gift Tax’ and the ‘Succession Tax’. 11 Note that only changing the exemption level pushes the cliff further out and makes it even steeper. For instance,
only increasing the $2 million exemption to $3.5 million would mean that estates just over $3.5 would now pay tax
on the entire amount of the estate whereas estates just under $3.5 million would pay nothing.
12
Comparison to Other States
Other states in the region have followed a similar path in the years since EGTRRA.
Connecticut’s three neighbors (NY, MA and RI) as well as Maine, Vermont and New Jersey all
‘decoupled’ and continued to base their EIG taxes on the dormant state tax credit.12 As such,
bubbles and cliffs were created in these states as well. Several states have also taken recent
actions to change their laws, including:
New York = in 2014, it began increasing its $1 million exemption by $1.0625M a year,
such that it is currently $3.125M and will reach $5.25M by April 2017. From 2019 on,
the exemption equals the federal exclusion. However, due to the way the tax is
calculated, its tax rate bubble remains.13 It follows the tax rate schedule from the old
state tax credit and has a top rate of 16% on estates greater than $10.1M.
Rhode Island = in 2014, it has increased its exemption level and indexed it to inflation,
such that it is $1.5M in 2015. It also eliminated its cliff tax by taxing only the portion of
the estate above the exemption level. It follows the tax rate schedule from the old state
tax credit and has a top rate of 16% on estates greater than $10.1M.
Vermont = in 2011, it increased its exemption to $2.75M. Its cliff tax remains. It
follows the tax rate schedule from the old state tax credit and has a top rate of 16% on
estates greater than $10.1M.
Maine = in 2012, it created a stand-alone estate tax with an exemption of $2M and
three tax brackets ranging from 8% ($2M – 5M) to 12% (above $8M). It no longer has
a cliff tax.
Massachusetts and New Jersey have made no significant changes to their tax laws as of this
writing. Figures 4a-c show the current exemption levels, the maximum tax rate, and the
estimated amount paid on a $20 million estate for all the states in the region. These figures
reveal that Connecticut’s exemption is among the higher in the region, and its top tax rate and
amount paid on a $20 million estate among the lowest. Thus, while the majority of states no
longer impose EIG taxes, Connecticut’s policies are similar to those of its neighbors, and its tax
burdens fall in the lower range of those in the region. More generally, Connecticut is fairly
similar to other states that continue to impose EIG taxes, as evident from Table 4, which shows
the exemption levels and range of tax rates for all states with EIG taxes in 2015. However, that
conclusion comes with the caveat that, as our brief review here shows, state EIG taxes are
changing a great deal and are definitely in flux.
12New Hampshire did not decouple and so effectively eliminated its EIG tax with the 2005 phase out of the credit.
Pennsylvania has a broad-based inheritance tax and New Jersey has both an inheritance and an estate tax. 13 New York’s tax is not a technically a cliff because the entire estate is not subject to tax once the estate exceeds the
exemption level by 1 dollar; instead, the amount subject to tax is rapidly phased in, thus leading to a very steep hill
but not a cliff per se.
13
Current Features of Connecticut’s EIG Tax
Table 3 reports the current Connecticut estate & gift exemption and statutory tax rates, and
Figure 5a and 5b show the estimated EIG tax liability and average tax rate in 2014, taking
account of the federal deduction, by the size of the estate. Estates that exceed the federal
exemption level (currently $5.43M) can deduct the state EIG taxes paid, which has the effect of
reducing the additional tax liability due because of the state law until all of the state EIG taxes
are deductible. For every dollar the estate exceeds $5.43M, it can deduct an additional dollar of
state EIG taxes paid and thus reduce its federal tax bill by as much as $.40; as a result, the net
(or additional) state tax liability is actually negative ($.09 in additional state EIG taxes minus
$.40 reduction in the federal liability = -$.31). This is the downward-sloping portion of the ‘after
federal offset’ line in the figures. Once the estate exceeds the federal exemption by enough that
all state EIG taxes can be deducted, the net state tax liability begins to increase again with the
size of the estate, but at a slower rate – because each additional $.09 paid in state taxes will
reduce the federal tax bill by 0.4 x $.09 (=$.036) as it is deducted. For example, an $11 million
estate would be able to deduct the full amount of the state EIG taxes paid ($856,200) from its
federally taxable estate, thus reducing its federal tax liability by 0.4 x $856,200 = $342,480.14
This example illustrates how states can still, in effect, gain a piece of the federal estate tax
revenues as they did in the past with the ‘pickup tax.’ This piece is the gap in the two lines in
Figure 5a. For this reason, it may make sense for the states to levy higher tax rates on estates
that are subject to the federal tax, as they can obtain another dollar of revenue while only
increasing the decedent’s total (state+ federal) tax liability by $.60.
Estates that are large enough to pay a state EIG tax but fall below the federal level do not receive
this tax benefit because they face no federal tax liability. These estates are also affected by the
state’s QTIP laws, which can significantly complicate estate planning. Connecticut (along with
New York, New Jersey, Vermont and DC) does not allow a separate state QTIP election,
although Connecticut does allow a state QTIP election if no federal QTIP election is made. By
choosing a QTIP equal to the amount for the federal exemption, one creates an estate tax burden
at the state level. By choosing the lower state exclusion, however, one might end up wasting the
federal exemption and pay more federal tax when the surviving spouse dies. 10 states allow a
state QTIP to differ from the federal QTIP, which allows the creation of a QTIP equal to the
federal exclusion without paying additional state tax at the time the first spouse dies. As stated in
Michael (2014), the allowance of a state specific QTIP election allows married couples to defer
the payment of state tax without forgoing the full federal exemption when the first spouse dies. It
also prevents the executor from having to make guesses as to what state and federal estate taxes
will look like in the future when choosing QTIP elections.
Connecticut also differs from all other EIG tax states in that it is the only state with a unified gift
tax. Thus, all taxable gifts (defined as gifts exceeding the federal amount of $14,000 per donor
to a given recipient per year) are treated as part of the estate. While Connecticut is unique in this
regard, many states with EIG taxes have laws to prevent EIG tax avoidance by transferring
14 Note that because the federal tax liability cannot be negative, smaller estates will not gain the full mtr*EIG tax
paid value of this deduction. Rather, taking this deduction will render their estate exempt from federal taxation.
14
wealth while still alive. These laws often entail a ‘look back’ period in which taxable gifts made
in the last few years before death (three years is a common window) are included in the estate.15
As a practical matter, then, Connecticut differs from other states by considering gifts made a
longer period of time prior to death.
Finally, starting in January, 2016, Connecticut Public Act 15-244 places a cap of $20 million on
total EIG taxes paid by a given estate.
Issues to Consider in Evaluating an EIG tax
An evaluation of any tax should include its distributional implications and its effects on
incentives and behaviors – and by extension, the tax revenues generated and economic growth
effects. Compliance and administrative costs of the tax should also be considered. Gale and
Slemrod (2000) provide an excellent overview of the many issues involved in evaluating the
estate and gift tax (primarily at the federal level).
Distributional Considerations
Almost by definition EIG taxes are desirable from an ‘ability to pay’ viewpoint, especially at the
current high exemption levels. Clearly, current EIG taxes reach only the very top of the wealth
distribution. In contrast, the top 24% of households would have paid state EIG taxes in the vast
majority of states in 1962 (Conway and Rork, 2006). EIG taxes have long been justified as
taxing according to ability to pay and as a way of reducing the concentration of wealth. We note
that the reduction in EIG taxes at both the federal and state level has occurred while US income
and especially wealth inequality have grown. Connecticut has followed this general pattern of
declining wealth taxation. In 2000, 9.17% of Connecticut deaths faced a Connecticut EIG tax,
whereas in 2013 only 1.75% did so.
However, concerns about ‘ability to pay’ have been raised in regards to small family businesses
and farms. In these cases, the assets comprising the estate may not be very liquid, and
beneficiaries may feel forced to sell the business/farm (liquidate the assets) to pay the EIG tax
liability. As a result, several states with EIG taxes have special provisions for small businesses
and farms (see Figure 1).
Behavioral Effects
The most common concerns raised about EIG taxes – and therefore arguments for their reduction
and elimination – have to do with their effects on behaviors. As Gale and Slemrod (2000) point
out, how EIG taxes affect the behavior of the one leaving the estate (the decedent or ‘donor’)
depends upon the motive for leaving an estate. With an uncertain life span, one cannot rule out
that bequests are ‘accidental’ – i.e., the donor is saving for precautionary reasons and will thus be
likely to have assets leftover when he or she dies. In the case of such accidental bequests, the
estate tax has no effect on donor behavior. However, it seems unlikely that very large estates –
the only ones facing a tax now -- are purely accidental.
15 Michael (2014, table 6) reports these rules for each state.
15
Rather, large estates seem likely to be a deliberate intergenerational transfer, and a rich literature
has explored the various motives for giving such transfers. Explanations include altruism,
whereby altruistic parents want to improve the well-being of their children, and exchange
motives, in which the transfer is ‘payment’ for a good or service provided by the children. The
behavioral implications of both types of motives have been tested empirically with mixed results.
A further complication in predicting the behavioral effects of EIG taxes is that the heirs’
behaviors may also be affected – both before and after the donor’s death. Prior to the donor’s
death, heirs may behave in such a way as to maximize their likely inheritance, which in turn
depends upon the donor’s motive.16 Receiving the inheritance may further affect the heirs’
behavior, with larger inheritances perhaps leading them to work less and accumulate less of their
own wealth through work and investment. These considerations reveal that it is possible for EIG
taxes to have behavioral effects that are either beneficial or detrimental to economic growth.
Migration
For state EIG taxes there is the additional behavioral effect that donors may reduce their EIG
taxes by moving to a state with a lower tax burden. This effect is the one most heavily
emphasized in state EIG tax policy debates, and it has been studied extensively. However, it too
is not completely straightforward. As before an ‘accidental’ donor would have no incentive to
move because they are not planning to leave an estate. Even for intentional donors, however,
moving to a new state likely entails large psychic and pecuniary costs and the tax burden is only
one of many state characteristics to consider. Besides the rest of the tax system and the public
services provided with those revenues, individuals may consider natural and cultural amenities as
well as the location of family and friends. Such behavior also presumes that individuals are
rational in confronting their own death, an assumption that has been challenged by empirical
research (Slemrod, 2003). Even if they are rational, one typically cannot predict the timing of
one’s death and so may delay moving until it is too late.
Empirical research on the migration effects of EIG taxes focuses on the migration decisions of
the elderly since they are the group most likely to have accumulated substantial wealth and to be
contemplating making a transfer of that wealth upon their death. The elderly are also much less
likely to be making location decisions based on their jobs. Most of these studies use census-
based data where migration is inferred by comparing their current residence to where they report
having lived in the past.
Census data reveals that interstate elderly migration is a fairly rare occurrence; less than 1%
move in a given year and that percentage has been declining in recent years, if anything. The
geographic patterns have been very stable for decades as well (Conway and Rork, 2011). Thus,
while EIG tax policy has changed a great deal since the 1970s, elderly migration patterns have
16 For example, if the donor is purely altruistic, she will leave a larger inheritance to the child with the least
resources because it will improve their well-being the most. This behavior may discourage wealth accumulation
among the heirs (the so-called ‘Samaritan’s dilemma’). Conversely, the exchange motive encourages the heir to
provide services to the donor to maximize their inheritance.
16
not – which suggests that such policy is likely not the driving force in elderly migration
behavior.
Recent research investigates this question more directly by estimating statistical models that
identify the factors most strongly associated with changes in elderly migration over time. Such
research consistently finds little or no effect of EIG taxes (Conway and Rork, 2006, 2012).17
However, there are limitations to this research. One is that it is difficult to observe reliably the
behavior of the very wealthy – given their small number – within census data designed to
represent the entire population. Still, other types of research likewise suggest little or no response
to such tax policies. One study examines the effect of state EIG tax policy changes on federal
estate tax returns filed, a proxy for the number of wealthy people living (and dying) in the state
(Bakija and Slemrod, 2004). While that study finds evidence that higher EIG taxes leads to lower
federal estate tax filings, the effects are modest and do not substantially diminish the revenues
yielded by an EIG tax. Another study considers the effects of EIG tax policy on revenues, using
data from Switzerland (Brulhart and Parchet, 2014). Switzerland is an interesting case study
because each canton – a small municipality within this small country – has its own EIG tax.
Given the short distances Swiss taxpayers would have to move to lower the EIG taxes, one
would expect to find evidence of tax-induced migration – and yet they do not.
Another type of evidence investigates the effect of targeted income taxes or tax breaks on
migration. Income taxes are paid every year and by a much larger proportion of the population,
so one would expect greater migration responses. And yet, two recent studies find little effect of
‘millionaire taxes’ on the migration of millionaires (Young and Varner, forthcoming, 2011).
Similarly, Conway and Rork (2012) find that income tax breaks targeting the elderly (such as
exempting pension income) has no effect on their migration behavior. The few studies that do
find evidence of a migration response to income taxes focus on a narrow type of individual, such
as inventors (Moretti and Wilson, 2015) and star athletes (Kleven et al, 2010). A final piece of
evidence comes from the Health & Retirement Study, a longitudinal, national dataset that
surveys individuals over the age 50 every two years. The survey contains a (followup) question
asking those individuals who have moved their reason for doing so. The survey offers 62
possible responses and state taxes are not one of them; respondents are allowed to respond
‘other’ and give a different response. Calvo et al (2009) find that family reasons are the top
reason for moving.
Overall, then, the empirical evidence for EIG taxes having a meaningful effect on the decision to
move is weak at best. This is not altogether surprising, given the potentially large costs of
moving and the many motives the elderly have for moving, including for assistance or to be
close to family.
17Older research often looked at migration patterns and policies at one point in time, such as from one US census.
These studies sometimes find evidence that EIG taxes were associated with less in-migration. The more recent
studies that investigate the effects of changes in policy over time, such as the recent ‘millionaire’ tax in New Jersey
or the changes in EIG taxes since the 1970s, enable researchers to separate the effects of tax policy from other state
amenities such as climate, cost of living and quality of life. (Low tax states have historically been in southern, low
cost states.) They also answer more directly the question asked in policy debates – if EIG taxes are reduced, will
migration patterns change?
17
Economic Growth, Revenues and Other Issues
The concern about these behavioral effects typically derive from the impact they may have on
economic growth. To our knowledge, only one study investigates the effects of EIG taxes on
economic growth, and it is preliminary (Brewer et al 2015b). This study follows the empirical
approach of the broader literature that explores the effects of tax policies more generally on state
economic growth. Its preliminary results suggest no effect of EIG taxes on the per capita growth
rates of states. This result is not surprising given that 1) the behavioral effects of EIG taxes have
been found to be either weak or mixed, and 2) the effects of the overall tax burden on economic
growth have likewise been found inconclusive (e.g., Reed, 2008 finds it decreases growth
whereas Gale et al, 2015 finds it does not).
Presumably taxes are imposed to obtain revenues. As shown in Figure 2, EIG taxes have
historically contributed a very small proportion of states’ overall tax revenues. EIG revenues are
also notoriously volatile and difficult to connect with the tax policy in place. They are volatile
because one very large estate can have a strong impact on EIG tax revenues in the year in which
the liability is paid. It is difficult to connect EIG tax revenues received with the tax policy in
place because it can take several years for an estate to be settled and all taxes to be paid. While
estates must typically pay an estimated amount of taxes within a short time (6-9 months) of
death, this payment can span two different calendar years. Furthermore, the estate may have to
pay additional taxes – or receive a refund – when the estate is eventually settled. Both the
volatility and the sometimes long period of time before estates get settled make it highly
questionable to attribute short-term changes in EIG tax revenues to changes in policy.18 For this
reason, in the next section we do not try to use revenue numbers to investigate the revenue
effects of past EIG tax policy changes nor do we try to project revenue estimates under different
policy scenarios.
One last consideration is compliance and administration costs. These are costs that harm both the
taxpayer and the state government. Thus, any policy reform should also consider the effects on
these costs. In the case of Connecticut, two elements appear outside the norm for state EIG
taxes. The first is the 6 month deadline for filing an estate tax return (most states have a 9 month
deadline); the second is the substantial increase in probate costs enacted this year to finance the
court system. Because the first is a matter of administrative policy and the second is a user fee
and neither is directly related to the size and effects of the EIG tax liability, they are beyond the
scope of our review.
The Effect of EIG taxes in Connecticut
None of the aforementioned studies focus on Connecticut specifically. In this section, we
examine data on distributional effects, migration, and economic growth for Connecticut, as well
as other states for comparison, to see how each outcome appears to be related to EIG tax policy.
18 Our discussions with Susan Sherman and other members of Connecticut’s DRS confirm that any attempt to link
changes in EIG tax revenues to specific changes in EIG tax policies is unwise, that the revenues received in any one
year are only weakly connected with the actual deaths occurring – and thus facing the tax – in that year.
18
This allows us to explore if the recent changes in state EIG tax policies appear to be have had an
effect on these different outcomes.
Distributional Effects
An often-cited advantage of EIG taxes is their progressive nature; they accrue most heavily to
those with the most ‘ability to pay.’ A recent study by the Connecticut Department of Revenue
Services (2014 Tax Incidence report) estimates the incidence of nine different elements of the
Connecticut tax system as of 2011.19 The study finds the EIG tax is by far the most progressive
tax and is one of only two progressive taxes in the system.20 The study reports that the tax is
paid entirely by the top three deciles of the income distribution and that 98% of it is paid by the
top two (p. 53).
Much has been written about growing income inequality in the United States. In preliminary
work, Brewer et al (2015a) calculate Gini coefficients, a measure of inequality in which 0 is
perfect equality and 1.0 is perfect inequality, using decennial census data for every state in 1990
and American Community Survey data in 2013. The authors find that the Gini has increased
from an average of 0.48 to 0.56, confirming the observation of increased inequality. Connecticut
experienced the largest increase in its Gini of all the states and D.C., from 0.482 in 1990 to 0.601
in 2013, and now has the fourth highest Gini coefficient in the country. Connecticut also does not
appear to be losing its high income elderly during this time period. In 2013, it ranked 5th in the
country in terms of the percent of the elderly population that is in the top 10% of the national
income distribution. That percentage has grown slightly since 1990, even though its rank slipped
one spot (it was 4th in the 1990).21 The percentage of the elderly in the bottom 25% of the
national income distribution has grown as well, which is consistent with the growing level of
income inequality revealed by the Gini coefficient.
Reducing or removing the EIG tax would therefore almost certainly increase the regressivity of
the overall Connecticut tax system, at a time when income inequality in Connecticut is high and
growing, although its small size suggests the impact would be small.
Migration
As noted above, a few different measures of migration exist. The 2008 Estate Tax Report,
conducted by the Connecticut DRS, as well as a 2015 report from the Yankee Institute (Janowski
and Bates, 2015), use migration data from the IRS over several years. To be comparable with
that work, we investigate that data as well. However, we note that the IRS data has several
important limitations that leads us to rely primarily on census-based data. The IRS data is
19 The 9 taxes considered are property, personal income, sales and use, excise, corporation business, gross earnings,
insurance, gift and estate (EIG), and real estate conveyance. 20 The report uses the Suits Index, which ranges from -1.0 (most regressive) to 1.0 (most progressive). The EIG tax
is 0.76 and the personal income tax is 0.11. The rest of the taxes all have Suits Indices below 0 and the overall
system has an index of -0.22, suggesting that the overall system is “slightly regressive” (p.14). See Table II-D on p.
15. 21 These numbers are in Table 2 and Appendix Table 1 in Brewer et al (2015a).
19
constructed by looking at the state in which a return is filed; when the state changes, migration is
inferred to have taken place. The publicly available IRS flow data, however, does not permit us
to focus on one age group (e.g., the elderly) or income group (e.g., high income) and instead is
reported for all taxpayers only. Another problem is that it only includes those individuals who
file tax returns by late September; it therefore misses late returns, which tend to be the more
complicated returns of high income, elderly taxpayers (Gross, 2011).
Beginning in 2011-12, the IRS began releasing a new kind of migration data based on nearly the
full universe of returns (Pierce 2015). This data reports the number of returns, exemptions and
adjusted gross income (AGI) moving into (in-migration) and out of (out-migration) of each state
by age and AGI group. It does not report the migration flow (how many move between each pair
of states). While much more useful for studying the migration behavior of the high income
elderly (the oldest age group is 65+ and the top AGI group is $200,000+), it is only available for
the last three years (2011-12, 2012-13, 2013-14) when EIG tax policy has changed little. We
therefore cannot use it to see if migration behavior changes when policy changes, the key
question here.
Decennial census data and data from the American Community Survey contain individual
characteristics, such that we can examine the migration behavior of the elderly in general and the
high income elderly, in particular. We can also study these behaviors over a long span of time
when EIG policy changed a great deal. For this reason, we emphasize that data in our analyses.
Table 5 reports the top 10 states to which Connecticut elderly have moved (out-migrants and
their top destinations) over the last several decades.22 We can see that Florida has been the top
destination, by far, since the late 1970s. Other prominent destinations are Connecticut’s
neighbors, Massachusetts and New York. Among potential retirement destinations, California
seems to have been replaced by the Carolinas and Georgia. However, such out-migration
patterns can be misleading because it tells only half of the story; many of these same states also
send elderly to Connecticut. The second panel in Table 5 reports the top 10 states from which
new Connecticut elderly residents have moved (in-migrants), and many of the same states
appear. It is difficult to argue that EIG taxes are causing people to move to Florida when a large
number of people are moving from Florida.
The clearest measure of migration – and by extension, the desirability of a state to its residents –
is net in-migration, which is the number of in-migrants (people moving in) minus out-migrants
(people moving out) for each state. The bottom of Table 5 shows that Connecticut has been
losing more elderly than it has been gaining since at least the late 1970s. Connecticut’s net in-
migration rate (in-migrants minus out-migrants divided by elderly population) has fluctuated
from -1.20 in 1976-80 to -3.94 in 1986-90 (Conway and Rork, 2015, Table 2). As noted above,
22 The decennial census long form asks where the individual lived 5 years ago, so our measures capture migration
during the 5 years leading up to the census. The census long form was replaced in the 2000s with the American
Community Survey, which is conducted every year and asks where they lived 1 year ago. Given its much smaller
size, its annual estimates are very unreliable. We therefore aggregate the annual data into a 5-year ‘counterpart’ to
the older decennial data (2006-2010) for comparison. To get an idea of the most recent migration patterns, we also
aggregate the most recent years that are available (2011-13).
20
elderly migration patterns have been quite stable for the country as a whole, with the same states
consistently losing or gaining the elderly since the 1970s. Connecticut follows the typical
northern (and especially northeastern) state pattern of losing more than it gains. New Jersey,
New York, and Massachusetts all display similar patterns.
The top panel of Table 6 reports the top 10 states that Connecticut loses its elderly to, on net, and
the top 5 states that it gains them from. Not surprisingly, this panel reveals that far more
Connecticut elderly move to Florida – and other temperate states (California, Arizona, the
Carolinas) – than move into Connecticut. It also reveals, however, that this pattern has persisted
for decades, even as state EIG taxes have changed a great deal. Connecticut also loses its
elderly, on net, to Maine and Massachusetts, which have EIG taxes, as well as New Hampshire,
which eliminated its inheritance tax in 2005. At the other extreme, we see that Connecticut gains
the most elderly, on net, from New York, as well as New Jersey and, depending on the year,
Massachusetts. These patterns, also, are fairly stable. At the bottom of the panel we report the
total number of Connecticut elderly residents ‘lost’ to migration on net (the total number of net
in-migrants). There appears to be no clear pattern over time.
Next, we compare these net-migration patterns to those for the high income elderly (which we
define as being in the top 25% of national income), reported in the bottom panel of Table 6.23
The migration measures will be more volatile for this group because the numbers get quite small;
we have cut the sample by 3/4ths and recall that less than 1% of the elderly typically migrate in a
given year. Even so, we see very similar patterns. This suggests that the high income elderly –
who are more likely to face EIG taxes – behave in a similar way as the general elderly
population.
Table 7 compares these patterns to the other extreme – all taxpayers (of all ages and incomes) via
the IRS data used by other studies. Here again, we see very similar patterns. Moreover, given
that the elderly typically migrate at much lower rates than the working population, these patterns
must be driven by younger individuals – who seem less likely to be considering EIG taxes in
their migration decisions.
We confirm the similarity between these disparate migration measures by finding very high
correlations between the different data (census elderly, census high income elderly, census non-
elderly, IRS data). If there is a group that is very different from the rest, it is the low income
elderly (bottom 25%) who are least likely to be impacted by EIG taxation.
This evidence is therefore consistent with previous studies for the US as a whole. Connecticut
elderly migration is very stable over time and does not seem to differ substantially for the high
income elderly (most likely affected by EIG taxes) or taxpayers of all ages and incomes (least
likely affected by EIG taxes). A final piece of evidence is that Connecticut’s migration patterns
are quite similar to other states in the region, as well as other cold weather states that do not have
23 While ideally we would narrow our sample to even a smaller slice of the income distribution (e.g., 10%), even at
25% the numbers of migrants becomes small, owing to the very low rate of interstate migration. The numbers are
sometimes small enough that we do not report the full top 10 or bottom 5 for them in Table 6. Shrinking the sample
even further would make detecting any geographic patterns questionable.
21
EIG taxes. These analyses and comparisons therefore suggest it is unlikely that EIG taxes are
playing a significant role in the decision to move into or out of Connecticut.
These analyses are limited, however, in that EIG taxes affect primarily the very rich, a small
number of individuals who may not be well captured by such broad data sources. We therefore
also look at federal estate tax returns filed in Connecticut versus other states, a similar measure
as used in Bakija and Slemrod (2004). This indirect measure of migration has serious drawbacks
of its own, including that the individual must have moved to the state and died there before they
will show up as a ‘migrant.’ Additionally, the number of federal estate tax returns filed is also
changing because of the many changes in the federal law, especially EGTRRA in 2001. The
number of estates subject to federal tax is going to decline and the size of the estates filed are
going to increase as a result of the steadily increasing federal exemption (recall Figure 3). A state
with a disproportionate number of extremely wealthy individuals (and very large estates) will
therefore show a smaller decline, over time, than a state with more moderately wealthy
individuals. And of course any economic event (such as the Great Recession) is going to affect
the level of estates subject to tax.
With these caveats in mind, Figures 6-8 report the trends over time in the federal estate tax
returns filed in Connecticut versus other states from 1998 to 2011.24 Figure 6a reports the total
number of federal estate returns filed in each of the states in the region and 6b reports the
percentage change from the year before. These figures show the steep decline that came after
EGTRRA, as well as the declines due to the recession and the large increase in the federal
exemption in 2009. These figures also make clear that Connecticut’s federal estate tax returns
behaved in a similar fashion as the rest of the states in the region, including New Hampshire
(which eliminated its inheritance tax during this time period).
Figures 7a and 7b report the same statistics for Connecticut compared to the southern states.
These other states include some of the top destinations reported in Table 5 and none have an EIG
tax. Figures 8a and 8b perform the same exercise, this time including cold weather states that
did not have EIG tax. These figures show that federal estate tax returns filed in these states all
follow the same general pattern as those for Connecticut. This is true in spite of the fact that
Connecticut created a stand-alone EIG tax in 2005, which it then reduced in 2010. And yet we
see no evidence that Connecticut’s federal tax returns behaved differently from these other states
in the years following these changes.
Finally, we look at what has happened to the number of Connecticut income tax returns, by
income level and a proxy for whether the household is elderly (whether they filed for an
adjustment due to social security benefits).25 This data is only available back to 2007, so we
cannot see the possible effects of the new estate law in 2005. However, we can look for effects
24 The federal estate tax return by state and year of death is only available in select years and the last year available
in 2011. Identifying the return by year of death, rather than year filed, is critical due to the delay in filing estate tax
returns we noted above. 25 We recognize that filing for an adjustment due to the receipt of social security benefits is a very imperfect measure
of the age of the household, but no other measure of age is available. We thank Connecticut’s Department of
Revenue Services for performing this special tabulation for us.
22
of the law that removed the ‘cliff’ or ‘bubble’ effective in 2010. It suffers a similar problem as
the federal estate tax return, as it is an indirect measure. The number of returns in a certain
income category can change because individuals moved, died, or had a change in their income.
The latter effect is especially important for the very high income elderly who likely draw most of
their income from investments, which are affected by the performance in the financial market.
To try to control for these confounders, we report the total number of Connecticut income tax
returns that included a social security benefit adjustment from line 42 (referred as SS returns
going forward) by income category in Figure 9a and the percentage of all returns that are SS
returns, by income category in Figure 9b. Figure 9a shows the steep decline in high income SS
returns in 2008 and 2009, rebounding strongly afterwards; this pattern could be suggestive of a
response to the change in the EIG tax law but is likely also due to the Great Recession. Figure
9b controls for this somewhat by reporting the percentage of each income category that are SS
filers (and thus are our measure of elderly and likely concerned with the EIG tax). Even so, we
would expect the elderly, especially those retired from the work force and drawing social
security, to have suffered bigger declines in their incomes as a result of the financial crisis than
other households whose incomes more likely come from earnings. Indeed that is what we see;
the percentage of high income filers who are ‘elderly’ declined steadily through 2008 and 2009
and has rebounded since, with the unexplained exception of 2013. While both the number and
percentage of high income SS filers have increased strongly since 2009, which might suggest a
response to the change in laws, it is still below where it was in 2007 when Connecticut’s EIG tax
was substantially higher. In our judgment the decline and subsequent rebound is far more likely
due to the effects of the Great Recession.
In sum, no measure of migration is perfect, and the very high income households who may face
the EIG tax are especially difficult to observe. We therefore present numerous pieces of
evidence, each with its strengths and weaknesses, to investigate if Connecticut’s migration
appears to be influenced by EIG tax laws. None of these analyses provide convincing evidence
that it is. Connecticut’s migration patterns have been fairly stable for decades, at the same time
that EIG tax policy has changed a great deal. One indirect measure of migration, federal estate
tax returns, show patterns that are consistent with other states with very different EIG policies,
including many of the states that attract Connecticut residents, and reveal no marked change
during periods when Connecticut changed its policies. The other indirect measure of migration,
the income tax returns filed by high income households likely to be elderly, show mixed results
that are likely due to the strong effects of the Great Recession.
Economic Growth
Concerns about behavioral effects such as migration ultimately come down to a concern about
the effects EIG taxes may have on economic growth. The two standard measures of economic
growth are the annual percentage changes in per capita personal income (PI) and gross state
product per capita (GSP), adjusted for inflation.26 Using per capita measures captures the well-
26For example, see Reed (2008) and Gale et al (2015). The 2008 DRS report on estate taxation also used these
measures, although it is not clear whether total or per capita measures were used. The report also focused on a
narrow period (2004-7), and examined measures of employment and population growth as well.
23
being of the average Connecticut resident; it also makes the measures more comparable across
states of different sizes. As many factors may affect economic growth, we examine the trends in
Connecticut’s growth over time, especially during periods when EIG tax policy has changed
(2005, 2009-10), and as compared with other states.
Figures 10a and 10b report the growth in income and GSP per capita, respectively, for each state
in the Northeast region including Connecticut. Connecticut’s growth follows very closely that of
these other states throughout the period, even in the late 1990s and early 2000s when it was the
only state with an EIG tax beyond the pickup tax. Likewise, Connecticut’s growth was higher, if
anything, in 2005 when it enacted its new EIG tax and lower in 2009 when it decreased its EIG
tax, which is the opposite of what one would expect if higher EIG taxes suppressed growth.
More generally, Connecticut’s growth pattern seems to make it more volatile that other states in
the region, but it seems to follow the same overall time trend.
Next we compare Connecticut’s growth patterns over time to those of the southern states, many
of which are popular destinations for CT residents and most of which have not had EIG taxes for
decades (see Figures 11a and 11b). Connecticut’s growth patterns seem to once again follow
roughly the patterns of these states. There also does not appear to be any special pattern
occurring around the time of EIG policy changes; Connecticut’s growth is again higher than
most southern states in 2005 and immediately afterwards and is in the lower middle around the
2009 policy change.
These figures report the growth rates for each individual state and so may sometimes be difficult
to read. Figures 12a and 12b simplify the comparison by reporting the average for three types of
states – other states in the Northeast, the South and northern states without EIG taxes during the
time period (primarily in the Midwest). These figures reinforce the conclusions drawn from the
others. Connecticut follows the patterns of these other types of states although tends to
experience more volatility; recent EIG policy changes do not seem to be affecting economic
growth in a manner consistent with EIG taxes having a negative effect.
Policy Options to Consider
Both the evidence presented here for Connecticut and the general literature on the economic
effects of EIG taxes suggest that EIG taxes have little effect on migration or economic growth.
Reports by the Connecticut DRS reveal that the EIG tax is the most progressive tax in the
Connecticut tax system and that it makes up a very small portion of total tax revenues. As such,
it appears unlikely that changing the EIG tax would have significant effects on the Connecticut
economy or the state budget. We nonetheless discuss here several policy options.
1. Retain the Current EIG tax
Connecticut has already made significant reductions and reforms to its EIG tax when it
eliminated the “cliff” in 2009. As Figures 4a-4c revealed, Connecticut has among the lowest
estate tax burdens in the Northeast region, with a higher exemption, lower maximum rate and
lower overall tax burden on large estates ($20 million) than almost all of the other states. Several
24
of these states continue to have ‘cliff’s or ‘steep hills’ as well. With the lack of evidence that
EIG taxes have a meaningful impact on either migration or economic growth, maintaining – or
possibly even increasing – the current EIG tax seems a viable option. It is also worth noting that
the vast majority of estates pay far less in estate taxes (federal + Connecticut) currently than at
any time in recent history.
One caveat is that Connecticut’s position of having one of the lowest EIG taxes in the region
may be diminished as Rhode Island and especially New York continue to reduce their EIG taxes
by increasing their exemptions. Nationally, some states that currently have EIG taxes have
enacted laws to phase them out or are considering doing so. The landscape for state EIG taxes
has the potential to change rapidly.
2. Conform with Federal Estate Tax Law
Federal law has three key features that distinguish it from most state with EIG taxes: 1) a higher
exemption level (currently $5.43 million), which increases each year, 2) portability (such that a
married couple effectively faces an exemption twice as large), and 3) a unified gift tax.
Currently, Connecticut has only the third feature and it is the only state that does. Changing
Connecticut law to conform to the federal law would simplify estate tax planning and therefore
likely reduce compliance costs.
Matching the federal exemption level would put Connecticut in line with New York, Delaware
and Hawaii; the rest of the states with EIG taxes currently have lower exemption levels.
Increasing the exemption would almost certainly reduce estate tax revenues by a substantive
amount. The only revenue data available is for estate tax returns received in a given year (rather
than for year of death, which allows identification of the specific policy in place), which means
we can only offer illustrative calculations.27 According to 2013-14 information provided in the
2013-14 DRS report, 395 of the 520 returns had a taxable estate below $5 million; these returns
made up $27,240,460 of the $206,115,002 taxes received or about 13.2%. These estates would
therefore not be subject to tax if the current federal exemption were in place the year of death.
Estates above the increased exemption level would also have their estate tax liabilities reduced.
Specifically, in 2015, increasing the exemption to $5.43M would reduce the tax liabilities of
estates above the exemption by $267,900 each.28 The 2013-14 estate tax revenue data lists 520-
395=125 returns above $5 million, such that total revenues would be further reduced by
approximately 125 x $267,900 = $33,487,500. These illustrative calculations therefore suggest
reduced revenues of (27,240,460 + 33,487,500 =) $60,727,960 or 29.46% of the revenues
received if the Connecticut exemption were raised to the 2015 federal exemption. The decreased
revenues will grow over time as the federal exemption level continues to increase and a larger
number of estates are pushed over the $2 million exemption level by inflation as well as real
growth in wealth.
27 See p. 41 of the 2013-14 report. As noted earlier, these revenue numbers refer to when the estate tax payments are
actually received, and so reflect deaths – and the EIG tax policy in place – from several years preceding the current
year. These calculations are therefore only illustrative of the possible revenue effects of such a change. 28This number comes from p. 40, showing that estates over 5.1M pay $238,200 plus 9.0% of the excess over $5.1M;
thus, the tax liability will be reduce by $248,200 + .09*(5.43M-5.1M) = 267,900.
25
Adopting portability would further increase the effective exemption level faced by the estates of
married couples; only Hawaii currently allows portability and Maryland has plans to do so
beginning in 2019. Recall that portability allows the surviving spouse to use any part of the
exemption not used by the deceased spouse. The specific effect of this policy varies depending
on the year in which the deceased spouse died, whether or not he or she made bequests to other
heirs (and thus used up a portion of the exemption), and whether or not a QTIP was set up; these
complexities make it difficult, if not impossible, to predict its effects on tax liabilities and
revenues. One simple calculation would be to assume that both spouses die in the same year, the
first leaves everything to the surviving spouse and there is no QTIP. In that event, portability
would double the size of the exemption; if done in combination with matching the federal
exemption, only estates over $5.43M x 2 = $10.86M would be subject to tax in 2015. Using the
same 2013-14 information on estates filed, this higher exemption would exclude at least 477 of
the 520 returns, which account for $68,802,570 (or 33.38%) of the taxes due.29 The remaining
43 estates would see a reduction in their tax liabilities of $839,400 each.30 Using this simplified
example therefore results in a total revenue loss of (839,400 x 43 =) $36,094,200 + 68,802,570 =
$104,896,770 or 50.89% of EIG revenues.
We caution that these calculations are merely illustrative; estate tax revenue is quite volatile and
is not measured in a way that allows us to link revenues with the policies in place at the time of
death. Portability is even more difficult to predict as its effects depend on several events and
choices. Nonetheless, we conclude that conforming to the federal law with respect to the
exemption and/or portability will result in a significant proportionate reduction in EIG tax
revenues and that the reduction will grow over time. Given the apparent distribution of
Connecticut estates, where the majority of estates are below $5 million and the vast majority
below $10 million, either change will exempt a large portion of the estates currently paying
taxes. They will also significantly reduce the estate taxes paid by all estates.
3. Allow for a Different QTIP Election
Currently, Connecticut is one of 5 states that does not allow a separate state QTIP election. As
stated earlier this creates additional tax liability for estates that fall in between the federal and
Connecticut exemption amounts. By allowing for differing QTIP elections at the state level,
Connecticut will allow for married couples to defer the payment of Connecticut tax without
forgoing the full federal exemption. The advent of federal portability, however, has lessened the
need for a state-specific QTIP election, since the state exemption amount could be put in the
QTIP and portability could transfer the remaining unused federal exemption to the surviving
spouse. That said, the allowance for a state-specific QTIP would align Connecticut with most
states that impose an estate tax, while sparing the executor from making assumptions about the
future state of taxation when making election decisions upon the death of the first spouse,
29The table classifies estates into different categories according to the state EIG tax brackets, which do not align
perfectly with the federal exemptions. Since it only classifies returns as being above or below $10.1M, we assume
all returns above 10.1M are also above 10.86M. 30This number comes from p. 40, showing that estates over 10.1M pay $748,200 plus 12% of any excess above
10.1M.
26
thereby making estate planning easier in the state. Revenues will be lower as a result, but given
the rise of portability, the loss seems minimal as QTIP’s fall out of favor.
4. Increase the Marginal Tax Rate on those Paying Federal Estate Taxes
The deductibility of state EIG taxes from the federally taxable estate allows states to capture a
portion of federal revenue, as they used to under the old ‘pickup’ tax. Once the estate exceeds
the federal limit, state EIG taxes reduce the federal liability and in effect receives a subsidy. The
exact ‘subsidy’ from this provision depends on the state EIG tax in place. Obviously, residents
in states without EIG taxes cannot claim this deduction and will pay the full, federal marginal tax
rate on every dollar of the estate above the federal threshold. For states with EIG taxes,
however, it depends upon whether the state exemption is less than or equal to the federal one.
Under the current Connecticut EIG tax, the additional state EIG tax liability net of federal taxes
actually declines once estates become federally taxable (recall Figures 5A and 5C.) This decline
is due to the fact that the estate has already paid a sizable amount of state EIG taxes once it
reaches the federally taxable threshold. Thus, each dollar of the estate beyond the threshold is
offset with a dollar paid in Connecticut EIG taxes, which effectively saves the taxpayer up to
$.40 in federal estate taxes.31 By avoiding federal estate taxation and because the Connecticut
marginal tax rate is well below the federal one, the estates just above the federal threshold
actually face a negative (federal + state) marginal tax rate.
If the state exemption instead matched the federal one, then both state and federal EIG taxation
would begin once the threshold was passed. Each dollar paid in state EIG taxes would reduce
the federal tax liability by the federal marginal tax rate. Using the top federal rate of 40% (which
sets in once the taxable estate exceeds the threshold by $1 million), the effective marginal tax
rate of the state EIG tax is actually (1-0.40)*mtr or only 60% of the statutory rate. For
Connecticut, that means its top rate of 12% is actually only 0.6*12 = 7.2%.
These two scenarios reveal that having an estate large enough to face federal taxation changes
considerably the true additional costs of paying a state EIG tax. They also reveal how states can
effectively receive a portion of federal estate tax revenues, as they did under the old ‘pickup tax,’
albeit no longer dollar for dollar. Increasing the marginal tax rate on estates facing the federal
estate could generate additional state revenues while having more minimal impacts on the total
(federal + state) tax liability owed on the estate and retaining low effective marginal tax rates that
increase with estate tax size, rather than the decline experienced by medium to large estates in
the current system.
5. Eliminate the Gift Tax
Connecticut is the only state with a stand-alone gift tax, meaning that the gift is potentially
taxable regardless of when it is made. It is also a unified gift tax, meaning that all gifts in excess
of the annual limit (currently $14,000 per recipient) count against the $2 million exemption for
31The top marginal tax rate of 40% sets in fairly quickly. While the first $10,000 of taxable estates are taxed at only
18%, rate quickly rises such that once over $100,000 the rate is 28% and it reaches the top rate at $1 million. For
simplification, we therefore use the 40% rate in these calculations and our general discussion.
27
the estate. The federal gift tax is also a unified tax, so in this way Connecticut is conforming to
the federal system, albeit at a lower exemption level.
Gift taxes are typically imposed to avoid ‘deathbed transfers,’ in which assets are transferred just
before or in contemplation of death in order to avoid estate or inheritance taxation. The few
states that imposed stand-alone gift taxes have eliminated them in recent years (Michael 2014).
However, nine states have ‘gift-in-contemplation-of-death’ rules that make a portion of gifts
made within some time period before death (typically two or three years) subject to tax (Michael
2014, Table 6). Additionally, in some states that base their estate taxes on the old ‘pickup’ tax
lifetime taxable gifts may reduce the available exemption (Massachusetts is one; see Michael
2014). The bottom line is that while Connecticut is the only state with a stand-alone gift tax,
many other states with EIG taxes have some provision to tax gifts to prevent deathbed transfers.
If Connecticut eliminated its gift tax without making any other changes, it would lose its gift tax
revenues, which equaled $8,764,162 in 2013. However, this number likely substantially under-
estimates the gift tax revenue generated in a typical year because of a onetime spike in gifts the
previous year. At the end of 2012, households had an incentive to increase their gifts as a hedge
against the uncertainty about possible increases to the federal estate tax; ATRA 2012 was not
actually enacted until early January 2013. This behavioral response is evident in the much
higher gift tax revenues reported for 2012 of $218,412,943. Looking at previous years, we see
gift tax revenues of $65,259,774 in 2011, $24,098,980 in 2010 and $24,629,845 in 2009. We
therefore expect that the loss in gift tax revenues would be at least $24 million and would likely
be significantly higher.
Eliminating the gift tax would also open the door to deathbed gift-planning strategies, which
could substantially reduce the estate taxes it collects as well. To prevent such tax-avoidance
strategies, the state may want to consider enacting gifts-in-contemplation-of-death rules like
other states have done.
6. Eliminate the Estate and Gift Tax
Eliminating the Estate and Gift Tax renders the rest of these changes moot. It will eliminate both
the gift and estate tax revenues collected, which in 2013-14 equaled $206,115,002. Connecticut
would join the majority of states without EIG taxes and be the only state in the region besides
New Hampshire without one.
Summary of Effects and Interactions of Different Policy Changes
Several of these policy options are not mutually exclusive and the effect of one often depends on
another. As already noted, the effect of both portability and increasing the marginal tax rate on
federally taxable estates depend on the exemption level Connecticut chooses. Likewise, the
effects of the current unified Gift tax (and thus the effects of eliminating it) depend on the
exemption level as well as the marginal tax rate. Finally, a higher exemption lessens the impact
of the QTIP modification and adopting portability mostly eliminates its effect.
All of these proposed changes to the existing system will likely result in a significant loss of
revenues, with the exception of increasing the marginal tax rate on federally taxable estates. Past
28
research and the evidence presented here for Connecticut suggests it is highly unlikely that such
reduced revenues would be made up for with increased tax revenues elsewhere (through greater
retention of rich residents or stronger economic growth, for example). These foregone revenues
would therefore necessitate increased taxes or reduced expenditures elsewhere in the Connecticut
state budget.
29
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30
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31
Glossary of terms
Cliff (or bubble) – If a range of estates faces zero estate taxation, a cliff occurs if a slightly larger
taxable estate is taxed on the full amount of the estate, including the amount that would not be
taxed if it were slightly smaller. Results in significantly large marginal tax rates.
Estate Tax – a tax calculated based on the net value of property owned by a deceased person on
the date of death
Gift Tax – a tax calculated based on the transfer of assets from one person (the donor) to another
(the donee) while the donor is alive. Currently, a donor may gift a donee $14,000 annually under
the federal annual gift tax exclusion amount. Any amount above that counts toward the federal
estate tax exemption.
Gini coefficient (or Gini index)—a statistical measure used to represent the income distribution
of a state (or nation), thereby capturing income inequality. Ranges from 0 (completely equal) to
1 (completely inequal)
Inheritance Tax – a tax calculated based on who receives a deceased person’s property.
Pick-Up Tax (or soak-up tax) – a tax imposed by states based on the federal estate tax credit for
estate/inheritance taxes paid at the state level. It was a mechanism for states to share in estate tax
revenues with the federal government, and hence added no additional tax burden to the
deceased’s estate. The passage of EGTTRA phased this out in 2005.
Portability – Allows a surviving spouse to use a deceased spouse’s unused estate tax exclusion.
First introduced as part of TRURJCA 2010, made permanent feature of federal estate taxation
after the enactment of the American Taxpayer Relief Act of 2012.
Progressivity/Regressivity—describes a tax system in which as a person has more income, they
pay a higher (lower) percent of their total income in taxes.
QTIP -- also known as a qualified terminable interest property. A trust in which spouse A
designates who receives the assets upon Spouse B’s death, but Spouse B has the right to all
income generated by the trust while alive. QTIP’s qualify for the marital exclusion, and are
commonly used by blended families.
Suits Index – a measure of tax progressiveness, similar in nature to the Gini index. Ranges from
-1 (the poorest person pays all taxes) to 1 (the richest person pays all taxes), so that positive
(negative) numbers indicate progressivity (regressivity).
Unified estate and gift tax – when the gift tax exclusion and estate tax exclusion are one in the
same.
32
TABLE 1: MAJOR CHANGES TO FEDERAL ESTATE TAXES SINCE 2000
Year Federal Exemption Level Top Tax Rate Notes
2000 $675,000 60%
2001 $675,000 55% EGTRRA enacted. Phases out state tax
credit and repalces with a deduction by
2005. Gradually lowers top estate tax
rate to 45% and raises exemption from
$675K to $3.5M.
2002 $1,000,000 50%
2003 $1,000,000 49%
2004 $1,500,000 48%
2005 $1,500,000 47% Federal state death tax credit fully
expires. State estate taxes are
effectively repealed in many states.
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 $5,000,000 35% Estate tax temporarily allowed to expire.
TRUIRJCA temporarily re-instates tax,
which is retroactively applied to all
deaths in 2010.
2011 $5,000,000 35%
2012 $5,120,000 40% ATRA 2012 enacted. Exemption now
$5M, indexed to inflation. Gift tax
exemption raised to that of the estate
tax. Decreases tax rate to 40%.
Introduces portability.
2013 $5,250,000 40%
2014 $5,340,000 40%
2015 $5,430,000 40%
33
TABLE 2: CHANGES TO EIG TAXES AT THE STATE LEVEL SINCE 2000
CT IN MT OK VT
DC KY NE PA
HI LA NJ SD
IA MD OH TN
CT HI MD NJ RI
DC IL ME NY VT
DE MA MN OR WA
WI WY IN* LA MT
OH* OK* SD AL AK
AR AZ* CA CO FL
GA ID KS MI MS
MO NH NM NC* ND
SC TX UT VA WV
IA KY MD NE NJ
PA TN
Nebraska collects no state inheritance tax but has a
county inheritance tax
*indicates state has repealed their state EIG tax
Before EGTTRA is enacted in 2001, these 17 states
had a separate EIG tax
Currently, these 15 States Have Decoupled or
Created a Stand Alone Estate Tax post-EGTRRA
Currently, these 30 States have not decoupled and
collect no EIG tax revenue
These 6 States did not Decouple but Collect a State
Inheritance Tax
Tennessee's state inheritance tax expires Jan 2016
Maryland and New Jersey have both an inheritance
and an estate tax
34
TABLE 3: SUMMARY OF CONNECTICUT ESTATE TAX CHANGES SINCE 2005
Year Exemption Cliff Range of
Amount Apply? Tax Rates $2.1 million $4.1 million $8.1 million
2001-2004 $200K - $600K no 12.87%-20.02% varies varies varies
2005-2009 $2 million yes 5.085%-16% $106,800 $290,800 $786,800
2010 $3.5 million no 7.2%-12% $0 $46,200 $418,200
2011-present $2 million no 7.2%-12% $7,200 $154,200 $526,200
NOTE: Prior to 2005, Connecticut has a succession tax and pick-up tax. Rates and exemptions depend on recipient.
Starting in 2005, these were replaced with a stand alone estate tax.
Starting in 2016, Connecticut has enacted a cap on EIG taxes paid of 20 million.
Estate Tax Due on Estate Worth
35
TABLE 4: SUMMARY OF CURRENT STATE EIG TAX PARAMETERS
State Exemption Amount Maximum Tax Rate
CT 2 M 12%
DE 5.43 M [a] 16%
DC 1 M [b] 16%
HI 5.43 M [a] 16%
IL 4 M 16%
IA 25000 [c] 15%
KY 1000 [c] 16%
ME 2 M 12%
MD 1.5 M [d] 16% estate, 10% inheritance
MA 1 M 16%
MN 1.4 M 16%
NE 40000 [e] 18%
NJ 675,000 16% estate and inheritance
NY 3.125 M [d] 16%
OR 1 M 16%
PA 3500 [c] 15%
RI 1.5 M 16%
TN 5 M 9.50%
VT 2.75 M 16%
WA 2.054 M 20%
[a] indexed to inflation going forward
[b] as of 2015, DC allows for increase to estate tax exemption, dependent on revenue targets
[c] for those inheritors who face the inheritance tax
[d] exemption increases annually until matches the federal exemption in 2019
[e] imposed by counties, not the state
36
TABLE 5: TOP INFLOWS AND OUTFLOWS FOR CONNECTICUT in the ACS, by YEAR
1 FL 8680 FL 13591 FL 9476 FL 12205 FL 8480
2 CA 1680 NY 2055 MA 2010 NY 3760 MA 1527
3 NY 1520 MA 1700 NY 1624 SC 1975 NY 1491
4 MA 1520 CA 1240 NC 1239 MA 1730 NC 1083
5 PA 760 SC 1035 CA 1201 NC 1625 SC 795
6 ME 680 NC 984 ME 1168 GA 1520 NV 771
7 NC 640 ME 818 SC 817 NH 1250 RI 664
8 RI 640 VA 690 VA 787 PA 1085 MI 509
9 NJ 600 RI 647 AZ 765 ME 785 MD 489
10 AZ 600 PA 645 PA 740 CA 775 NJ 442
TOTAL: 22040 29250 25980 34230 18850
1 NY 5880 NY 4249 NY 6235 NY 7815 NY 3739
2 MA 1680 MA 1887 FL 2985 FL 6635 FL 2661
3 FL 1560 FL 1462 NJ 1276 MA 2380 NJ 1135
4 NJ 1160 NJ 1191 MA 1023 RI 1195 MA 1055
5 CA 560 CA 565 PA 732 NJ 825 CA 591
6 PA 560 PA 417 CA 553 TN 570 MD 560
7 RI 320 IL 372 RI 430 CA 470 PA 410
8 ME 320 RI 365 NC 250 VA 430 SC 408
9 VT 280 ME 323 VA 230 NJ 430 AZ 364
10 MD/VA 200 VA 216 ME 230 PA 395 TN 313
TOTAL: 14280 13321 16744 23575 14295
NET
CHANGE: -7760 -15929 -9236 -10655 -4555
TOP DESTINATIONS FOR CONNECTICUT RESIDENTS
TOP ORIGINS OF NEW CONNECTICUT RESIDENTS
2011-2013
2011-2013
1976-1980 1986-1990 1996-2000 2006-2010
1976-1980 1986-1990 1996-2000 2006-2010
37
TABLE 6: NET INFLOWS TO CONNECTICUT in the ACS, BY STATE AND YEAR
Net Rank
1 FL -7120 FL -12129 FL -6491 FL -5570 FL -5819
2 CA -1120 SC -962 NC -989 SC -1945 NV -719
3 NC -520 NC -783 MA -987 GA -1410 CA -515
4 AZ -520 CA -675 ME -938 NH -1175 MA -472
5 GA -440 ME -495 SC -668 NC -800 SC -387
6 NH -360 VA -474 CA -648 MI -750 RI -356
7 ME -320 NH -392 AZ -575 ME -705 MI -223
8 RI -320 MD -377 WA -557 PA -690 AZ -130
9 SC -280 AZ -333 NH -438 AZ -460 NH -122
10 TX -240 RI -282 TN -374 MD -405
44 MO 120 MN 320
45 IA 120 IL 123 MI 102 TN 380 WV 193
46 MA 160 MA 187 MO 134 RI 635 PA 257
47 NJ 560 NJ 634 NJ 860 MA 650 NJ 693
48 NY 4360 NY 2194 NY 4611 NY 4055 NY 2248
Net Change: -7760 -15929 -9236 -10655 -4555
Net Rank
1 FL -2800 FL -8224 FL -2885 FL -3235 FL -1876
2 CA -480 NC -701 MA -544 SC -915 NV -296
3 AZ -240 SC -677 NC -431 CA -425 MI -258
4 MA -200 CA -636 CA -358 NC -390 AZ -241
5 ME -160 ME -316 ME -293 MI -380 NH -173
6 GA -160 NH -315 AZ -254 GA -340 SC -140
7 VT -160 MD -226 NH -239 TX -315
8 NC -120 AZ -215 SC -171 AZ -205
9 SC -120 RI -178 TN -159 NV -200
10 PA -171 VA -147 NH -150
44 AL 150 NY 62
45 OH 235 WV 89
46 NJ 120 MA 351 MN 245 MA 198
47 PA 160 NJ 524 NJ 130 NJ 260 MD 255
48 NY 1360 NY 1132 NY 1346 NY 1565 NJ 274
Net Change: -2880 -10761 -5132 -4335 -2236
Blanks occur when the number of observations become too small to report
2011-2013
2011-2013
ALL ELDERLY
RICH ELDERLY (TOP 25% of NATIONAL INCOME)
1976-1980 1986-1990 1996-2000 2006-2010
1976-1980 1986-1990 1996-2000 2006-2010
38
TABLE 7: NUMBER OF MIGRANTS TO/FROM CONNECTICUT, BASED ON IRS FILINGS
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
IN 36282 37081 36639 34583 35446 35435 33929 35116 33501 31207 32680 37511 38055
OUT 41607 39934 38954 41849 42600 43591 42742 42274 39347 36489 39062 44180 46496
NET -5325 -2853 -2315 -7266 -7154 -8156 -8813 -7158 -5846 -5282 -6382 -6669 -8441
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
IN 65889 66536 66349 62973 64680 63819 60398 61862 58211 53751 56971 64832 66985
OUT 71714 69149 67495 73808 75942 77171 74838 72974 66701 61070 65076 75623 81493
NET -5825 -2613 -1146 -10835 -11262 -13352 -14440 -11112 -8490 -7319 -8105 -10791 -14508
NET MIGRATION FROM/TO CT, BY TOP STATES, ACCORDING TO IRS FILINGS ON EXEMPTIONS
1 FL -33690 FL -23173 FL -13929
2 NC -6880 NC -11038 NC -4866
3 VA -5227 TX -5873 TX -3829
4 GA -4751 GA -5574 MA -3809
5 ME -3310 SC -4908 CA -2955
6 AZ -2769 VA -4344 SC -2939
7 SC -2719 CA -3804 GA -2226
8 VT -2261 MA -3573 VA -1920
9 PA -2108 PA -3188 ME -1372
10 CA -1884 AZ -2453 PA -1249
44 IL 917
45 MA 974 NJ 1094 MO 35
46 RI 1825 RI 1086 KS 165
47 NJ 2766 MI 2452 NJ 700
48 NY 38207 NY 27435 NY 16498
NET
CHANGE: -31681 -54713 -33404
2001-2005 2006-2010 2011-2013
RETURNS
EXEMPTIONS
40
FIGURE 2: EIG REVENUES AS A PERCENTAGE OF TOTAL TAX RECEIPTS, BY SELECTED
STATES AND YEARS
0
0.5
1
1.5
2
2.5
3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Percentage
CT
NY
NJ
MA
RI
US Average
41
FIGURE 3: FEDERAL AND CONNECTICUT ESTATE TAX EXEMPTION AMOUNTS, BY YEAR
$0.00
$1,000,000.00
$2,000,000.00
$3,000,000.00
$4,000,000.00
$5,000,000.00
$6,000,000.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Connecticut Exemption Federal Exemption
45
FIGURE 5A: NET CONNECTICUT ESTATE TAX BURDEN AFTER FEDERAL DEDUCTION OF
CONNECTICUT’S ESTATE TAX
FIGURE 5B: AVERAGE TAX PER DOLLAR OF CONNECTICUT ESTATE in 2014
$0.00
$100,000.00
$200,000.00
$300,000.00
$400,000.00
$500,000.00
$600,000.00
$700,000.00
$800,000.00
$900,000.00
$1,000,000.00
0 0.8 1.6 2.4 3.2 4 4.8 5.4 6.2 7 7.8 8.6 9.4 10.2 11 11.8
Connecticut
Esta
te T
ax B
urd
en
Value of Estate (in Millions of Dollars)
CT Estate Tax Net CT Estate Tax Burden After Federal Tax Reduction
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
0.0
0.4
0.8
1.2
1.6
2.0
2.4
2.8
3.2
3.6
4.0
4.4
4.8
5.2
5.4
5.8
6.2
6.6
7.0
7.4
7.8
8.2
8.6
9.0
9.4
9.8
10.2
10.6
11.0
11.4
11.8
Tax a
s P
erc
ent
of E
sta
te V
alu
e
Value of Estate (Millions of Dollars)
Average Rate Ignoring Federal Offset Average Rate After Federal Offset
46
FIGURE 6A: TOTAL NUMBER OF FEDERAL ESTATE TAX RETURNS, BY NORTHEAST
STATES
FIGURE 6B: TOTAL FEDERAL ESTATE RETURNS AS PERCENTAGE OF PREVIOUS YEAR OF
DATA, NORTHEAST STATES
47
FIGURE 7A: TOTAL FEDERAL ESTATE TAX RETURNS, FOR SOUTHERN STATES AND
CONNECTICUT
FIGURE 7B: TOTAL FEDERAL ESTATE RETURNS AS PERCENTAGE OF PREVIOUS YEAR OF
DATA, FOR SOUTHERN STATES AND CONNECTICUT
48
FIGURE 8A: TOTAL FEDERAL ESTATE RETURNS FOR NON-EIG MIDWESTERN STATES AND
CONNECTICUT
FIGURE 8B: TOTAL FEDERAL ESTATE RETURNS AS PERCENTGE OF PREVIOUS YEAR OF
DATA, NON-EIG MIDWESTERN STATES AND CONNECTICUT
49
FIGURE 9A: TOTAL NUMBER OF CONNECTICUT INCOME TAX FILERS CLAIMING SOCIAL
SECURITY BENEFIT ADJUSTMENT (LINE 42), BY AGI
FIGURE 9B: PERCENT OF ALL CONNECTICUT INCOME TAX FILERS CLAIMING SOCIAL
SECURITY BENEFIT ADJUSTMENT (LINE 42), BY AGI
50
FIGURE 10A: ANNUALIZED GROWTH IN PER CAPITA INCOME, NORTHEAST STATES
-6
-4
-2
0
2
4
6
8
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13An
nu
al G
row
th %
CT MA ME NH NY NJ PA RI VT
51
FIGURE 10B: ANNUALIZED GROWTH IN GROSS STATE PRODUCT PER CAPITA,
NORTHEAST STATES
-8
-6
-4
-2
0
2
4
6
8
10
121
97
8
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13A
nn
ual
Gro
wth
%
CT MA ME NH NY NJ PA RI VT
52
FIGURE 11A: ANNUALIZED GROWTH IN PER CAPITA INCOME, CONNECTICUT AND
SOUTHERN STATES
-8
-6
-4
-2
0
2
4
6
8
101
97
8
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
An
nu
al G
row
th %
CT AL FL GA LA MS NC TN TX SC
53
FIGURE 11B: ANNUALIZED GROWTH IN GROSS STATE PRODUCT PER CAPITA,
CONNECTICUT AND SOUTHERN STATES
-15
-10
-5
0
5
10
151
97
8
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
An
nu
al G
row
th %
CT AL FL GA LA MS NC TN TX SC